Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Inc

Question

Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Incomplete Data [LO10 LO10-2] Sharp Company manufactures a product for which the following standards have been set Standard Quantity Standard Price Standard Direct materials Direct labor or Hours 3 feet ? hours or Rate $5 per foot ? per hour Cost $ 15 During March, the company purchased direct materials at a cost of $44,160, all of which were used in the production of 2,350 units product. In addition, 4,800 direct labor-hours were worked on the product during the month. The cost of this labor time was $36,000 The following variances have been computed for the month: Materials quantity variance Labor spending variance Labor efficiency variance s 3,150 U $3,100 U $700 U Required 1. For direct materials: a. Compute the actual cost per foot of materials for March. b. Compute the price variance and the spending variance. 2. For direct labor: a. Compute the standard direct labor rate per hour b. Compute the standard hours allowed for the month's production. c. Compute the standard hours allowed per unit of product

Explanation / Answer

Solution 1:

Direct material quantity variance = $3,150 U

(SQ - AQ) * SR = - $3,150

(2350 * 3 - AQ) *$5 = - $3,150

AQ = 7680 Feet

Actual quantity of material purchased and consumed = 7680 feet

Actual cost of direct material = $44,160

Actual price of direct material per feet = $44,160 / 7680 = $5.75 per feet

Material price variance = (SP - AP) * AQ = ($5 - $5.75) * 7680 = $5,760 U

Material spending variance = Material price variance + Material quantity variance = $5,760 U + $3,150 U = $8,910 U

Solution 2:

Labor spending variance = $3,100 U

Actual direct labor cost = $36,000

Actual direct labor hours = 4800

Actual rate of direct labor = $36,000 / 4800 = $7.50 per hour

Labor efficiency variance = $700 U

Labor rate variance = $3,100 - $700 = $2,400 U

(SR - AR) * AH = -$2,400

(SR - $7.50) * 4800 = -$2,400

SR = $7 per hour

Stadard direct labor rate per hour = $7

Standard direct labor cost = $36,000 - $3,100 = $32,900

Standard hours allowed for month's production = $32,900 / $7 = 4700 hours

Standard hours allowed per unit of product = 4700 / 2350 = 2 hours per unit

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